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Working Paper

The Effect of Foreclosures on Nearby Housing Prices: Supply or Disamenity

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A number of studies have measured negative price effects of foreclosed residential properties on nearby property sales. However, only one other study addresses which mechanism is responsible for these effects. I measure separate effects for different types of foreclosed properties and use these estimates to decompose the effects of foreclosures on nearby home prices into a component that is due to additional available housing supply and a component that is due to disamenity stemming from deferred maintenance or vacancy. I estimate that each extra unit of supply decreases prices within 0.05 miles by about 1.2 percent while the disamenity stemming from a foreclosed property is near zero.
Topics
Affordable housing
Neighborhood quality
09.02.2014ISSN 2573-7953 WP 10-11ROriginal Paper WP 10-11DOI 10.26509/frbc-wp-201011r
Keywords foreclosure, housing prices, neighborhood effects
JEL Classification Codes H23, R20, R30

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Hartley, Daniel A. 2014. “The Effect of Foreclosures on Nearby Housing Prices: Supply or Disamenity.” Federal Reserve Bank of Cleveland, Working Paper No. 10-11R. https://doi.org/10.26509/frbc-wp-201011r